Privilege and the ‘client’: The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch)

Publication December 2016


Introduction

The English High Court has held that notes of interviews with current and former employees of a corporation as part of an investigation by in-house and external lawyers are not privileged as a matter of English law. The Court also confirmed that English privilege rules should be applied in cases before the English court so that, even though the interview notes were likely to have been privileged as a matter of US law, they were not privileged as a matter of English law.

Although the decision does not change the position under English law, it nevertheless provides an important illustration of legal advice privilege under English law and, in particular the need to appreciate who is the ‘client’. In addition, the case provides a stark reminder of the complexities surrounding privilege in cross-border litigation and investigations and the need to think about the privilege rules not only in the jurisdiction in which a party is currently engaged, but also the jurisdictions where proceedings may subsequently be commenced. It also re-emphasises the need to carefully consider on an ongoing basis who the “client” is where legal advice privilege (and not litigation privilege) applies.

Background

This issue arose within proceedings known as The RBS Rights Issue Litigation whereby the claimant shareholders of the Royal Bank of Scotland (RBS) are seeking to recover investment losses incurred further to the collapse of RBS shares on the grounds that the prospectus for the 2008 rights issue of shares in RBS was not accurate or complete. As part of this ongoing litigation the claimants sought disclosure and inspection of interview notes in relation to two internal investigations involving interviews by or on behalf of RBS (involving in-house, US and UK lawyers, as well as the RBS Group Secretariat (the Secretariat), consisting of non-lawyers), with current and former employees. One of the investigations arose in response to subpoenas by the US Securities and Exchange Commission relating to RBS’s sub-prime exposures.

RBS attempted to resist disclosure on the grounds that:

  • the interview notes were subject to legal advice privilege;
  • apart from the interview notes taken by the Secretariat, the interview notes constituted lawyers’ privileged working papers;
  • the English court should apply US federal law under which the interview notes were said to be privileged;
  • the English court should exercise its discretion to withhold the documents on the basis that they are privileged under US law, even if English law governs the question of privilege.

Legal advice privilege

It was common ground that the leading authority on legal advice privilege is the Court of Appeal’s decision Three Rivers (No 5)1, where it was held that the “client” for the purposes of legal advice privilege was the three-man Inquiry Unit set up to deal with certain legal issues and that information gathered from employees outside this unit was no different for legal advice privilege purposes from information obtained from third parties.

In the present case, RBS claimed that the interview notes were protected by legal advice privilege on the basis that they recorded a communication between a lawyer and a person authorised by RBS (including current and former employees) to communicate with the lawyers for the purpose of RBS seeking legal advice. In what the Court considered to be “the fundamental and most powerful part of RBS’s case”, RBS submitted that it was not contrary to Three Rivers (No 5) that where an individual, with the authority of a corporation which is seeking legal advice, communicates to the corporation’s legal advisers at their request either instructions or factual information in confidence and for the purpose of enabling that corporation to seek or receive legal advice, that communication (including any factual information) should be treated as if the individual were part or an emanation of the client and protected by legal advice privilege accordingly. RBS contended that such treatment is necessary in order to fulfil the purpose of the protection afforded by legal advice privilege.  Further, RBS sought to distinguish Three Rivers on the basis that it concerned “internal” preparatory documents created by employees to send to the lawyers and not direct communications between such employees and the lawyers. RBS also pointed to academic criticism of the case and its disapproval in other jurisdictions, in particular the Court of Appeal in Singapore.

The claimants countered that legal advice privilege only covers communications between a client (narrowly defined) and his lawyer for the purpose of the lawyer giving and that client seeking or receiving legal advice and that the gathering and communication of information by a person who is not strictly the client (even if they are an employee of the client) is not protected by privilege even if carried out at the request of the client and/or its lawyers.

The Court acknowledged that Three Rivers was a “controversial decision”, but found that it was nevertheless bound by it. The Court held that although the interview notes recorded direct communications with RBS’s lawyers, they comprised information gathering from employees or former employees preparatory to and for the purpose of enabling RBS, through its directors or other persons authorised to do so on its behalf, to seek and receive legal advice. 

In other words, the RBS employees and former employees who were interviewed by the legal team did not fall within the definition of ‘client’ as defined in Three Rivers and therefore the communications were not covered by legal advice privilege.

Lawyers’ working papers

It is generally accepted that under English law, lawyers’ working papers are privileged under the legal professional privilege doctrine on the basis that they provide a “clue” to the lawyers’ advice or reveal the “trend of advice” which the lawyer is giving. For this reason, verbatim transcripts of non-privileged interviews would not be privileged, even if the notes were taken by a lawyer. The Court noted, in this regard, that an interview note which recorded the lawyer’s own thoughts and comments on what he was recording with a view to advising the client would almost certainly be privileged.

However, the Court considered that the question was ultimately evidential and on the facts, RBS’s evidence did not go far enough to substantiate the claim to privilege on the basis of lawyers’ working papers. It was not enough simply to say that the interview notes were not verbatim and that therefore they must contain legal input or selection justifying the claim to privilege. Although the interview notes were said to reflect the lawyers’ mental impressions, this was not supported by any assertion that the notes did in fact contain material that would or could reveal the trend of advice – and the Court did not consider that it would be proportionate or appropriate in circumstances to permit RBS to supplement its evidence given that the matter had already been argued out.

Applicable law

RBS contended that US federal law should apply on the basis that it was the jurisdiction with which the engagement or instructions, pursuant to which the documents came into question or the communications arose, were most closely connected.

Although the Court was not unsympathetic to RBS’s submissions, it held that there was no sufficient basis for disturbing what was considered to be the well-established convention or practice of the English court of applying the law of the forum – in this case, English law.

Discretion

Although the Court recognised that it had a discretion whether or not to order production where a party resisted disclosure of documents, it is likely to lean heavily in favour of disclosure unless there were “compelling grounds” and a “special case” to take a different approach (such as the risk of violence, intimidation, interference with witnesses or destruction of evidence). It did not find such grounds in this case.

What does this mean in practice?

The decision is of significance to all corporates involved in cross-border investigations and litigation.

It is an important reminder that what is privileged in one jurisdiction will not necessarily be held to be privileged in another, and that the status of interview notes and other potentially sensitive documents will ultimately depend on the law of the forum where the question of privilege is being addressed.

It confirms that, in cases involving legal advice privilege, courts of first instance will continue to be bound by the controversial and narrow definition of “client” in the Three Rivers (No 5) decision of the Court of Appeal which, for now, remains good law. That said, the judge in this case seemed to have sympathy with RBS’s position in respect of the narrow definition of “client” for the purposes of legal advice privilege under Three Rivers (No 5). The judge acknowledged that this was a controversial case.

However, it remains vital to carefully consider who is “the client” in each case at the outset and as the matter develops. Indeed the judge also added, obiter, that it may also be that in a corporate context only individuals singly or together constituting part of the “directing mind and will” of the corporation can be treated as being, or being a qualifying emanation of, the “client” for the purposes of legal advice privilege. As RBS submitted, this would restrict the scope of legal advice privilege available to corporate bodies yet further and go beyond the findings in Three Rivers (No 5). It would also introduce a significant burden on lawyers to ensure that they took their instructions from and gave their advice to only those individuals constituting the “directing mind and will” of the corporate client, with ample scope for dispute around who those individuals comprised. In practice, it only re-emphasises the need for carefully scrutiny of the position on an ongoing basis.

On the other hand, some reassurance can perhaps be taken from the judge’s view that interview notes recording the lawyer’s own thoughts and comments with a view to advising the client would almost certainly be privileged – provided that when challenged, a party can demonstrate some attribute of or addition to the interview notes which distinguished them from verbatim transcripts by revealing or at least giving a clue as to the trend of legal advice being given.

In any event, the judge made clear that it “may be that in a suitable case the Supreme Court will have to revisit the decision”, and has now granted RBS permission to appeal directly to the Supreme Court, rather than having to go through the Court of Appeal. Assuming that the Supreme Court grants permission to appeal, it is anticipated that the appeal will be heard early next year. For the first time in over a decade, therefore, there may be an opportunity for Three Rivers (No 5) to be overturned and a wider definition of “client” for the purposes of legal advice privilege to prevail.

Although RBS did not claim litigation privilege at first instance, it would be helpful for the Supreme Court to address and provide direction on when an investigation becomes sufficiently adversarial or confrontational to constitute litigation for litigation privilege purposes, as this also remains a grey area under English law.

Until then, English privilege law remains unchanged.

Further information on privilege:


Footnotes

1

Three Rivers District Council and others v Governor and Company of the Bank of England (No 5) [2003] QB 1556


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